Government Contracts & Investigations

Tiered Evaluations: A Lesson in Reasonably Applying Different Rules

By | December 5, 2019

It’s not always clear where the applicability of one law or rule should stop and the applicability of another should begin. Recently, the Government Accountability Office (GAO) decision in Becton, Dickinson and Company, B-417854 (November 15, 2019) helped clarify the interplay between the Buy American Act (BAA) and the Trade Agreements Act (TAA) when it comes to small business set-aside procurements.

Becton, Dickinson and Company (BD) protested the request for quotations (RFQ) issued by the Department of Veteran Affairs (VA) to establish blanket purchase agreements (BPAs) to provide patient exam room instruments and supplies for VA health centers nationwide under the VA’s Medical Surgical/Prime Vendor 2.0 Program. The solicitation anticipated a total set-aside award establishing multiple BPAs with a performance period less than or equal to five years.

Of note, the solicitation stated that the VA would evaluate offers using a tiered evaluation approach. The tiers were (1) service-disabled veteran-owned small business (SDVOSB) concerns; (2) veteran-owned small business (VOSB) concerns; (3) small business concerns, with historically under-utilized business (HUB) zone small business concerns and 8(a) participants having priority; and (4) large business concerns.

A tiered evaluation requires the contracting officer to evaluate quotations from the first tier first, here, SBVOSBs. If no quotations are received from SDVOSBs or if none could result in an award, the contracting officer must amend the solicitation to remove the SDVOSB set-aside and evaluate quotations from the next tier, here, VOSBs. The contracting officer proceeds in this way until an award can be made to the offeror whose quotation represents the best value to the Government. Ultimately, this means that the contracting officer will not consider quotations from lower tiers where an offeror from a higher tier can receive the award. Tiered evaluations make sense for the VA to the extent that, if an SDVOSB or VOSB concern cannot be selected, the VA does not have to resolicit the requirement.

The tiered evaluation method results in some clauses of a solicitation applying to certain offerors, e.g. small business concerns, and other clauses of a solicitation applying to other offerors, e.g. large business concerns. In this VA procurement, the RFQ incorporated FAR clause 52.225-1, Buy American—Supplies, and the related Buy American Certificate, as applicable to small business concerns, and FAR clause 52.225-5, Trade Agreements, and the related Trade Agreements Certificate, as applicable to large business concerns. Both the BAA and TAA are concerned with the source of end products supplied to the Government. However, they apply different tests for determining whether an end product will be considered a manufactured domestic end product. Unless the end product qualifies as a domestic end product that has been manufactured in the United States or a qualifying country under the applicable test, there are restrictions on when and to what extent the manufactured end product may be procured.

For the BAA, a manufactured domestic end product is “[a]n … end product … produced in the United States … if [t]he cost of its components mined, produced, or manufactured in the United States exceeds 50 percent of the cost of all its components …or …[t]he end product is a [commercial off-the-shelf] item.” For the TAA, the test is whether the manufactured end product is “an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States or a qualifying country into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.” To determine whether and to what extent a proffered manufactured product complies with the BAA or TAA and can be acquired, the solicitation contained a Buy American Certificate and the Trade Agreements Certificate for the competitors to certify whether they offered a domestic or qualifying country end product.

Further, the VA obtained a nonmanufacturer rule waiver from the Small Business Administration, where the waiver allows nonmanufacturer small businesses to supply products from businesses of any size regardless of the place the goods were manufactured.

Six days before the deadline for submitting quotations, BD filed a protest with GAO. BD protested the terms of the solicitation alleging that the RFQ improperly advantaged small business by applying different standards to small and large business competitors. BD argued that the TAA should be applied to both large and small businesses and the nonmanufacturer exception should not be applied only to the small business because to have different standards would prevent a level playing field for the competition.

GAO disagreed with the protester’s various arguments holding that the agency could apply different standards to small and large business competitors in accordance with the express terms of the BAA and TAA. GAO recognized that the nonmanufacturer rule waiver properly allows small businesses to source foreign end products, and that the FAR expressly states “that the BAA applies to small business set-asides and that the TAA does not apply to acquisitions set aside for small businesses.” Furthermore, the BAA accounts for foreign-sourced supplies, including those acquired pursuant to the nonmanufacturer rule waiver, by adding a premium to the evaluation of foreign end products if there is an offer that includes an analogous domestic end product that would otherwise be higher-priced. Thus, GAO found that BD’s protest failed to “allege facts that, if uncontradicted, establish the likelihood that the VA violated applicable procurement laws or regulations.”

This decision highlights that there are a number of twists and turns in how the BAA and TAA may be applied. And, while different laws may apply to different classes of competitors and result in different standards, that does not mean that the GAO will find that they violate competition in contracting rules. Rather, where there is reasonable support for an agency’s actions under applicable laws and regulations, GAO, at least, will not disturb the procurement. Whether such distinction is fundamentally fair or promotes an appropriate socio-economic goal may be a question to raise elsewhere.

Contact Judith Araujo for more information.